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The Complete Guide to Covered Calls, Futures and Greeks — Transcript

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0:00And your covered call strategy works so
0:01well that your shares keep getting
0:03called away.
0:04How do you decide whether to roll the
0:05call, buy the stock back, or just move
0:07on to the next trade?
0:09>> Well,
0:10I mean, this is the dream scenario. So,
0:13I mean, unless you're selling covered
0:14calls against stock that you've had for
0:16so long that you have tax issues,
0:18assuming this was just a trade, I would
0:20just say, "Great trade. Move on to the
0:22next one."
0:23>> Yeah, I mean, listen, this
0:24[clears throat] is uh
0:27Somebody wrote to me last night. Uh I'll
0:28tell you a an a good email I got last
0:30night. They said, "Tom,
0:33I don't know if I should do covered
0:34calls anymore because every time I do a
0:35covered call, the the stock blows
0:37through the upside." And I'm like,
0:39>> Keep feeling that.
0:39>> And your issue is exactly what? Like,
0:42that's a high-class problem cuz when
0:43your stock blows through the downside
0:44every time you do a covered call, that's
0:46when you should be concerned. Right. But
0:47when you go when it blows through the
0:48upside, it's like, "Okay."
0:49>> funny? It's like, "Psychology says, I'm
0:51why Why would I do this? Just keep the
0:53stock when you sell calls."
0:54>> Every trade you're making is a winner. I
0:55I didn't realize there's anything wrong
0:56with that. Um
0:59When your covered call strategy works so
1:01well that your stocks get called away,
1:03first of all, you don't have to roll
1:04this You don't have to roll the call.
1:06You don't have to buy the stock back.
1:07I'm You could just let it You can eat it
1:09What I do is I'm going to tell you the
1:11exactly what I do every single time.
1:13Either I close the trade out and take my
1:15profits. The best thing to do is close
1:16the trade out and take your profits.
1:18But, [snorts]
1:19>> [clears throat]
1:19>> if you still want long deltas in that
1:21stock, close the trade out, take your
1:23profits, sell an out-of-the-money put.
1:25By doing that, you reduce your capital
1:27requirement from 50% to 20%, you improve
1:30your probability of profit from from
1:32about 60 or 65% all the way up to 80%,
1:35and you still keep a little bit of long
1:37delta, which makes you happy, and you're
1:38short some premium.
1:39Again, when you have a covered call
1:40strategy that's working too well, take
1:43your profits,
1:44and you take it at once. Close it out as
1:45a spread. Sell the stock, sell the
1:47stock, buy the call back, and then you
1:50at the same time, you can sell an
1:52out-of-the-money put.
1:54>> So, I have two positions. Uh one is in
1:57SpaceX, which is I sell the naked put
2:00140 July 31st and break even is 133.
2:06What is the risk of early assignment in
2:09this case?
2:10>> Zero.
2:11I would do zero. I mean, zero risk of
2:14assignment now. I mean, if the stock
2:15gets under if the if the stock gets, you
2:18know, the stock has I mean, there's no
2:20there's no there's no right now your
2:22risk is zero.
2:22>> Is this it's
2:25>> Yeah. No, your risk is zero. There's no
2:26risk of assignment. This stock would
2:27have to go the stock a month from now
2:30When When is your expiration for you?
2:32>> July.
2:32>> Oh, July 31st.
2:34>> July 31st. So, at when we get to the end
2:36of July like around July 25th, the stock
2:39would have to be, you know, the stock
2:40would have to be under 125 to have any
2:42risk of assignment.
2:43>> No, he's short the 130.
2:44>> 140. 140s.
2:46You have no risk of assignment now.
2:48>> Oh, as soon as I get assigned, what do
2:50you suggest? Should I sell a covered
2:52call 150 or something?
2:54>> Not sure that you're First of all, you
2:56have no you don't know that you're going
2:57to be assigned. And second, if you do
3:01get assigned, yes, I would sell whatever
3:02that at the time that you get assigned,
3:05we call that kind of the wheel strategy,
3:06you know, you sell a put, then you wheel
3:08it into a covered call. I would sell
3:10whatever call is the closest to the 30
3:14delta. So, if the 30 delta call just
3:17look at the deltas. And so, if the 30
3:18delta call is the 150, sell the 150s. If
3:20it's the 160, sell the 160s. If it's
3:22140s, sell the 140s. So, just do it
3:25based on delta.
3:26>> My question is a strategic one. I've
3:28only rolled I've only written about 100
3:30contracts so far.
3:32And I've only rolled a few,
3:34but I have one position in video that's
3:37way over balanced in my portfolio. So,
3:39I've been wanting to sell.
3:41And
3:42I have a
3:43contract tomorrow that would
3:45for 220 that would execute and the stock
3:49is above
3:50220.
3:51So, it's deep in the money. I just
3:52strategically how do I best take
3:55advantage of getting my best uh
3:58>> It's not deep in the money. It's only $5
3:59in the money. So, and and which and
4:01there's plenty of premium in Nvidia. So,
4:03if it expires tomorrow, you just you in
4:05a single trade
4:06>> 39 cents left to make. So, so it's
4:08basically full profit.
4:10>> Yeah, so so
4:11>> It's an equal stock right now.
4:12>> Right. So, what you want to do in there
4:13cuz I'm sure you want to keep your
4:14stock, right? Nvidia. You want to keep
4:16the stock.
4:17>> No, I actually want to rebalance and uh
4:20take a
4:21the an assignment at some point around
4:23220 or 230. So.
4:24>> Oh, then just just do nothing.
4:26>> Yeah, do nothing. You're long the call,
4:28right?
4:28>> No, you're you're long the stock short
4:30the call.
4:31>> I do.
4:32>> But for example, right now um it's 220
4:35is the call, but it's selling at 225.
4:38So, when I have a chance to pick up that
4:40extra 500 somehow?
4:42>> Hold it. Let me just make sure we have
4:43the same thing. You you own the stock
4:44and you're short the call, right?
4:46>> No.
4:47>> Correct.
4:48>> Oh.
4:48>> Right, you have a covered call on.
4:51>> Correct. I have a number of covered
4:53calls on Nvidia. Most of them are way
4:55out of the money.
4:56>> Right. This one happens to be now in the
4:57money and scheduled to expire tomorrow.
4:59>> So, this one just disappears. You have
5:01your max profit.
5:02>> Right. But if you want to continue with
5:03the position, you buy back that 220 call
5:06right now. It's trading 30
5:09Yeah, and you sell another call at the
5:12money or just out of the money in
5:14another weekly option or monthly option.
5:15>> option. You can roll the call forward if
5:17you want to keep the position, but if
5:18you're willing to get rid of it, you
5:20just do absolutely nothing and it will
5:22disappear on Saturday morning.
5:23>> But I think he wants to keep I think he
5:24wants to keep the stock.
5:25>> No, he said he wants to keep the stock.
5:26>> And here's
5:28Yeah, here's the rub. I would like to
5:30have that money by next week for a
5:33particular purpose.
5:34>> You will have that money. You'll have
5:35that You'll have that money on Saturday.
5:36>> Right.
5:38>> Okay.
5:39>> Yeah, you'll be It'll just disappear.
5:40There's nothing you have to do as long
5:42as the stock closes over 220 and you've
5:44already maximized your profit. Like Tony
5:46says, there's only 30 cents left to
5:47make. You do absolutely nothing, and
5:49then on Monday morning, you know, you'll
5:51have that money hit your account. If
5:53it's 100 shares, it'll be another, you
5:55know, $22,000,
5:56and you're done. And then that money
5:58will be freed up. You would have max
6:00profit on that on that covered call.
6:01>> Good job, buddy. You.
6:02>> Okay, now I have
6:03Okay, one final quick question. Now, if
6:05that is the most I want to sell on
6:07Nvidia this year for tax purposes, I
6:09have a number of other
6:10uh calls that are at 230, 235, 240. I
6:13don't want Nvidia to all sudden shoot up
6:15So, then roll those calls forward.
6:18Roll those calls forward.
6:18>> No, no, no, no. You want Nvidia to go to
6:21230, 235 tomorrow even. Just roll those
6:24calls forward out to like September,
6:26October, November, whatever you want.
6:28Just roll those calls forward, then you
6:30have no assignment risk for the rest of
6:31this year.
6:32>> wait until the stock rallies, or you
6:34could do whatever. There's there's no
6:35There's plenty of premium in Nvidia on
6:37further out duration.
6:39>> You don't have anything to worry about.
6:39>> have any stock
6:41tax issues until expiration.
6:43>> Right.
6:43>> So, you could do this anytime between
6:44now and expiration, depending on what
6:45price Nvidia is.
6:46>> Yep. Exactly.
6:48>> All right.
6:49>> Thanks, Ken.
6:49>> you guys. I've held Nvidia for so many
6:51years that I've it's been way outsized
6:53as far as my overall uh
6:53>> Nice trade, man. Nice trade.
6:55Great trade.
6:56>> Yep.
6:56>> Thanks. Thanks, man. Thanks.
6:58>> You ready for my trades of the week?
6:59>> Yeah, let's do it.
7:00>> All right. Apple, sell a put. This is
7:02not going to be there right now because
7:03Apple's up $2.40, but sell a Sep 280 put
7:06for $2. Stock on its low, 80% pop. It
7:10doesn't have the greatest IV rank from
7:12what I remember.
7:13>> it's it All the IV ranks are low. It's
7:14in the 30s.
7:15>> It was one of the better ones.
7:16>> They're all kind of low.
7:18>> Um
7:19Yeah. Uh listen, 80% pop, I'm getting $2
7:21for my money, and a margin account is a
7:23couple hundred bucks.
7:23>> Yeah, unfortunately, you're not going to
7:24get it this morning, though.
7:25>> No, I unfortunately
7:27>> But Apple has been a PIG pig compared to
7:29everything else.
7:30Stock's on its on its cycle lows.
7:33>> Yeah. All right.
7:34>> Yep. All right, good.
7:35>> Uh Meta. Uh Meta right now is up $9.
7:38You're not going to be able to do this,
7:39either. Uh put ratio spread for the big
7:41dogs. These are for the larger size
7:43account. Buy the SEP 525 put one time.
7:46>> The question is, do you sell a covered
7:47call
7:49if your stock's below, you know, your
7:51your break even? Do you sell a covered
7:53call
7:54below your basis?
7:57And what if the stock rallies after
7:59that?
8:00Should you roll the call higher? Do you
8:01cover it? Like, what are you doing?
8:03And I feel really strongly about this
8:05topic. So, but I'll ask you, Scott.
8:08What do you do?
8:10>> Yeah, totally. If you I mean, if you're
8:12selling a put and you get hit on the
8:14stock, I would absolutely, you know, at
8:16that point, I mean, depending on the
8:17situation, assuming it wasn't a
8:18disaster, assuming it was somewhere
8:20close, you go, "Fine. You're still
8:21obviously bullish on it." Assuming you
8:23have the buying power to hold the stock,
8:25absolutely keep stock and sell a call.
8:26And if it rallies, just keep rolling the
8:28call.
8:28>> So, this just happened to me last week.
8:31Um I sold the weekly puts in uh Walmart.
8:36>> [clears throat]
8:36>> The stock was 114.
8:39I sold the
8:41I think the expected move was like $5.
8:44It had dropped $10. It went to one 114
8:46to 104.
8:47I sold the 110 puts.
8:49So, soon So, and they were weeklies. So,
8:51I got hit on stock. So, now I'm long
8:54stock in Walmart at whatever it was,
8:57[snorts] like 109.
8:58And the stock was trading at 104 and
9:011/2, 105. And so, I
9:04immediately sold a call. I think I sold
9:07the 106 calls for SEP or OCT. I don't
9:10remember which one. I have to I'll look
9:12at it. If it's If it's SEP, I'll roll to
9:13OCT tomorrow. And so, yeah, I'm
9:16underwater now because I sold the 106
9:18calls even though I'm long stock at 109.
9:21So, it's exactly the situation from
9:22here. Um Now, that's what happens when
9:25you get burnt on an earnings trade. And
9:28it's a short-term earnings trade.
9:29There's nothing you can do. So, I just
9:31sold the calls. And what I'm hoping to
9:33do is I let's say I took it I don't
9:34remember exactly I took it maybe a
9:35dollar or something. So, so I'm long
9:38this stock at 109. It's currently
9:40trading 105. I sold the 106 calls.
9:42>> to 107.
9:43>> I can maybe get back to 107. And if I
9:45roll forward again, maybe I can keep the
9:46dream alive for another month or two. Or
9:48maybe I just cover it eventually for a
9:51$2 loss if it goes up, as opposed to a
9:53$5 loss. Stock got down to 103.
9:56>> Yep.
9:57>> I mean, all you're trying to do is to
9:58reduce the size of your loss. But of
10:01course you would
10:02of course
10:04you sell the covered
10:05>> Unless you just want out.
10:06>> Yes, you sell the covered call. You're
10:07in a bad trade and you're trying to
10:09mitigate the loss.
10:10>> And again, nothing wrong with wanting
10:11out and getting out. Or again, depending
10:13on the account size, if you don't have
10:14the money, you might not have a choice.
10:16And if you don't have a choice, then I
10:17would say then look to sell another put
10:19if you [clears throat] still like that
10:20position.
10:21>> Sure.
10:21Um and then we default to a the 30 delta
10:24strike is the one we default to. That's
10:26kind of always the default. You can do a
10:27little higher, a little lower if you
10:28want.
10:30And you know, when you sell a call below
10:32your cost base, this is not a mistake.
10:34This is the mechanics. What else are you
10:36supposed to do? You There's There's no
10:39other There's no
10:40There's no quick fix for a bad trade.
10:42You have to work your way back. And
10:44sometimes it'll take a month, sometimes
10:46it'll take three months, sometimes it'll
10:48be never.
10:50But hopefully you can make some money
10:51back. Now, what happens if the stock
10:52continues to go down? You continue to
10:54roll that call down.
10:55>> Yep.
10:56>> And you roll it down aggressively. And
10:58what happens if the stock goes up? Well,
10:59you either let it get called away or you
11:00roll it out in time.
11:03That's it. You just play the game, man.
11:04It's just a game.
11:06You know, you're you're you're playing a
11:07game mechanically. As long as you can
11:09continue to do the mechanics on this,
11:12you know, up and down, that's the best
11:14you can do as a trader. And over time it
11:16works.
11:18If the stock moves higher and breaches
11:20our short strike,
11:21at that point we generally close out the
11:23trade. And when you close out that
11:24trade, you can then turn around sell
11:26another out of the money put for a high
11:28probability trade if you want. That's
11:29the mistake that a lot of people make.
11:30They don't go turn around and do other
11:32high probability put.
11:33>> Yeah.
11:34>> And and um
11:37so we replace that covered call. When
11:39you have a covered call that goes your
11:40way and you just take your profits, you
11:43should replace that with a short put if
11:45you still like the stock.
11:47>> Correct.
11:47>> Cuz you take this trade where you're
11:48okay, I've kind of maxed out and then
11:50you put on another high probability
11:52trade and you're essentially rolling the
11:53profits. It's an offensive roll. It's
11:56kind of thing I I really like that.
11:57>> Yep.
11:58It's good stuff.
11:59>> I'm Tom Sosnoff. He is Scott Sheridan.
12:01S&P's up 40, Nasdaq's up 280. The Nasdaq
12:04has not moved the entire freaking day
12:07that we've been on. Um
12:09>> [cough and clears throat]
12:09>> The gold has not moved. S&P's S&P's have
12:12had about 20 handle rally.
12:14>> Yeah, you've had Moos moved, you've had
12:17Microsoft has moved, uh you've had Meta
12:20has moved. But
12:22>> Apple's moved a couple bucks up.
12:24>> Um you know, uh
12:26I I have been, just to give you a little
12:30like
12:30brief like weekly recap.
12:33This has been a very
12:35um it's been a good week for premium
12:37sellers, but this has not been a good
12:38week for putting on new trades.
12:41It's also there's been some outlier
12:42moves. Now, lucky thing, we didn't
12:44really get caught in any of these
12:45earnings plays. We didn't trade them
12:46last night and I didn't get caught in
12:47Moderna, but there has been some outlier
12:49moves.
12:50>> Um I looked at Moderna Moderna was
12:52nasty.
12:52>> I know. I looked at Moderna yesterday to
12:54try to find a trade.
12:56I couldn't find something I wanted to do
12:58in there and I
12:59>> See, and if you let the gigantic tool,
13:01they'd find plenty of trades for you.
13:04>> No.
13:05>> Okay.
13:06>> No. No, I like to find my own trades.
13:08I'm always going to find my own trades.
13:10Um
13:11It's 1 minute before we go off air, so
13:13just a quick little reminder. Um
13:16uh there will be some um
13:18there'll be some new videos coming out
13:20tomorrow. Um oh, you can follow us on on
13:23on X also at we are Lost Dog. And I also
13:27do a weekly podcast with Dylan Ratigan
13:28that's on that's on X and you can check
13:32out @saznauf on money or you can ask
13:34questions send questions to one lucky
13:35dog @lostdog.com.
13:38>> And obviously joined for free at
13:40lostdog.com. Yes, sign up.
13:43>> And with that [clears throat]
13:44great week, happy Thursday is buying
13:47stock
13:48um
13:50more capital efficient
13:52ever more capital efficient than buying
13:53options. Specifically after an extreme
13:55down move when ball spikes to extreme
13:57levels
13:58and do longer dated options just get too
14:00expensive to buy?
14:02Sure.
14:03The answer is sure.
14:04>> Yep.
14:05>> There's plenty of times when I've looked
14:06at options and I'm like there's no
14:08freaking way.
14:08>> Right.
14:09>> But the other side to that is that means
14:11the puts if calls are super expensive
14:13that means puts are super expensive. So
14:15instead of getting long stock if you
14:16want to just sell puts at super
14:17expensive inflated volatilities you can
14:19do that too.
14:21>> Yeah.
14:22>> You know and and before we get into our
14:24other topics today one more question
14:26from the dog pound. Nine By the way, 989
14:28LostDog do not be shy.
14:30No Tony's today so you're going to get
14:32real answers.
14:33I chatted with LostDog last night.
14:35Really? LostDog was out too last night
14:38reviewing my latest zero DT strategy.
14:42That AI soft That AI software is
14:44absolutely amazing.
14:46Felt like I was talking to Tom himself
14:48in person. Wild. I I don't think you
14:51were talking to me last night but you
14:53you are going to be able to talk to our
14:55You can talk to our LostDog software now
14:57and it
14:57>> That's really funny like talking to it
14:59like you know when you go into these
15:01>> It is really cool.
15:02>> these shops where they say you put your
15:03credit card in and it just knows what
15:05you take but the reality of it is it's
15:06just a bunch of cameras that people are
15:07watching and they're just charging you
15:09for what they think they took. That's
15:10not what we have here. We do not have
15:12Tom working 24/7 behind the scenes
15:14answering your your trading questions.
15:16>> I do I'm behind on emails today but I do
15:18answer a
15:19shitload of emails. I will tell you
15:20that. Anyway, so lots of lots of
15:23questions and we will get into them.
15:26Um
15:27just in case you're wondering CRM uh was
15:30up I think I would think it was I don't
15:31have it right in front of me, but I
15:32think it's up about 20 bucks this
15:33morning or 25 something like that. And
15:35the expected move um was around I looked
15:38at the strike was around 14 or 15.
15:41And CrowdStrike also exceeded its
15:43expected
15:44>> It was up 37 now. Okay. And the expected
15:46move was about 15. So so Crowd so CRM
15:48was outside the expected move and then
15:51>> First of all, that hurts.
15:54Pink shoes?
15:55>> No, 54%.
15:57>> Yes, 46. Thank you to the 46%. I
15:59appreciate it.
16:00>> I I don't like them either.
16:02>> Yeah. I I didn't ask you.
16:03>> I know. I just threw my two cents in
16:05there.
16:06>> You You were the 54%.
16:07>> Yeah.
16:08>> Appreciate that.
16:09>> I agree.
16:09>> Thank you.
16:10>> Um
16:11All right, we have a bunch of different
16:13questions today. So we're going to we're
16:14going to take you through these and I
16:15think you're going to like them. Um
16:18First one.
16:19If you're looking to initiate a trade in
16:22any of these underlyings like um
16:25you know, any of these earnings plays.
16:28Um
16:31First
16:32This really isn't a question. This is
16:33more of like
16:35if you're looking to initiate a trade in
16:36any of these, like we're talking about
16:38post earnings right now. First check the
16:41IVR and then see if the IVR has
16:43collapsed. What I would say is if you
16:45want to do a post earnings trade today
16:48in any stock that moved outside of its
16:50expected range, you usually have at
16:53least a day to put that trade on. So if
16:56you think Nvidia, which is just outside
16:58the range by about let's say 30%,
17:01CrowdStrike by about 150%
17:04and or sorry, CRM by 150% and
17:07CrowdStrike something by like 100%.
17:10Any one of those stocks you're going to
17:11have about a full day of inflated IVR
17:14just based on kind of historical
17:16performance.
17:16>> What was the expected to move across
17:17strike? I think it's up more.
17:19>> Uh I think 16 or 17.
17:21>> It's up uh 29.
17:22>> Yeah, so it's almost two times.
17:23>> Yeah.
17:24>> So so in anything that moves like one or
17:27two times, I would say that you have at
17:29least a day
17:31before the IV real before the IVR
17:33collapses and the IV collapses. Okay?
17:36Um
17:37if you're in a trade such as a strangle
17:39and it's been breached on the call side,
17:42can you also can you look to roll up the
17:44put side?
17:46And we're talking about now an an
17:48earnings trade. If you're in an earnings
17:50trade such as a strangle that's been
17:52breached on the call side, is it best to
17:54roll up the put side or is it best to
17:57recenter the trade or is it best to
18:00close out the trade post earnings?
18:06>> [sighs and gasps]
18:08>> I think if you put an earnings trade on
18:10and it's for this week, you just got to
18:12move on. If you have something that's
18:13out further, then I would play with it.
18:16So to me it would depend on the
18:17duration.
18:18>> Yeah. Um
18:22Yeah, I mean listen, based on based if
18:25you're if you put a trade on like a
18:27strangle and the stock moves outside of
18:29your range, the first thing I do is I
18:31roll up the put because that neutralizes
18:33my risk.
18:33>> Even if it's a couple days?
18:35>> No, no, we're talking about like
18:36>> Oh, if you have 40 days.
18:37>> Yeah. So first thing I do is roll up the
18:39put because if I'm breached on the call
18:41side, I roll up the put cuz I want to
18:42neutralize my delta. But I don't leave
18:44that on for very long and then I quickly
18:46decide whether I want to recenter or
18:48roll out in time. Recenter in the same
18:50month or roll out in time for the next
18:51month.
18:52I mean that's kind of how I approach
18:53these things.
18:54We have a bunch of callers too. 989 Lost
18:56Dog, Tokyo from Chicago. And guys, we
18:59can't see our full screen so just move
19:00those little
19:01>> Move that up a little bit the bottom
19:02screen, the calling queue.
19:04>> Uh
19:06somebody named Tokyo
19:07>> I love that's a strong name.
19:09>> Tokyo. Tokyo.
19:10>> Tokyo. Love
19:12>> from Chicago.
19:15>> Learning futures options, the natural
19:17next step, or would you recommend
19:20getting comfortable with straight
19:21futures first?
19:23>> 100% futures options because it just
19:27fits. It's a It's to me a natural
19:29progression from trading equity options,
19:30then you can jump to futures options.
19:32Trading futures is a very different
19:34animal. You should try it, but I would
19:36first get comfortable trading futures
19:38options. As we've talked about, using
19:40the same types of strategies that you're
19:41using on the equity options side, just
19:43cutting back your buying power. You
19:45know, we talked about this yesterday,
19:46Thomas saying cutting back your buying
19:47power 30 35% when you're trading, you
19:50know, in this world. But absolutely
19:53trade futures options before you jump
19:55straight into futures.
19:57>> Yeah, I mean, if you want to scalp some
19:58some micro futures, we talked about
20:00yesterday as a good way to get an
20:01introduction to futures. That's cool.
20:03But I 100% agree with Scott. The best
20:06way to introduce yourself is through is
20:09through like some uh futures options
20:11trades. And we talked about this
20:12yesterday, like some of the underlyings
20:13that you should start with and or or the
20:15day before and and things like that. And
20:18I mean, the strategies are all the same,
20:19the approach is the same, the mechanics
20:21are the same, the optimization is the
20:22same. So, I would start with futures
20:25options as the next natural step. Um
20:27just remember they're a little bit
20:28bigger, so stay super small. And I think
20:31you'll be really comfortable and you're
20:32really going to like span margining.
20:34Next question.
20:36This came from uh from a listener who
20:39who um uh who I interact with a lot.
20:42What's the most common mistake you see
20:44beginners traders making compared to
20:47experienced traders?
20:50>> I would say size, you know, allocation.
20:53So, they don't use they don't stay
20:58you know, mechanical to say you're going
21:00to use X percent across this many
21:01trades. It's like, well, I think this is
21:03a good one and they go five or 10 times
21:05on the one. Why? Because they had a
21:07feeling and that usually doesn't work.
21:09It's I'm going to lean into size.
21:11>> I I think I think that's the most
21:14dangerous mistake that a new trader
21:17makes compared to an experienced trader.
21:18And sometimes experienced traders like
21:20us, we make this same mistake, just so
21:21you know. We're we're not immune to
21:23trading too big size. But, there's no
21:26question the most dangerous mistake is
21:27size. I would argue that the most common
21:30mistake for beginners is number one,
21:33thinking that you know something.
21:35Because it's the most dangerous thing
21:38you can do in the trading world.
21:40>> based off of your gut. That's exactly
21:42what
21:42>> dangerous thing in the world of finance
21:44is
21:45is starting with the assumption that you
21:48know something. You can start with an
21:49assumption that this is what you want to
21:51do.
21:51>> Or that you you believe something. Like
21:55you can believe something. You can
21:56create a narrative and it was great.
21:59Tony and I had this conversation,
22:01whatever. He saw something as being
22:02bullish, I saw something as being
22:04bearish. And we're looking at the exact
22:05same thing. So, you can create a
22:07narrative just with the understanding of
22:09nobody knows anything.
22:10>> And the And then the last thing I'll
22:11say, a common mistake that people make
22:13is they they get too hung up on like a
22:15specific strategy or a specific
22:18underlying. You have to be open to where
22:20the best opportunity is based on implied
22:23volatility, based on volume, based on
22:24lots of different things. Don't don't be
22:26locked in to like a single underlying or
22:29a single strategy.
22:31>> We call that being agnostic.
22:32>> We do. We call it kind of
22:34open to everything.
22:35>> Yep.
22:36>> Um
22:37we're going to take a quick call from
22:39Steve in Central Texas.
22:40>> Steve-O.
22:41>> Steve-O.
22:43>> Not just Steve.
22:44>> Steve, what's up, brother?
22:45>> guys. Morning, guys.
22:48You're rocking it. I'm air back in my
22:50balloon after you came back on.
22:53>> Thank you.
22:54>> trading
22:55roughly three decades and don't know
22:58anything.
22:59>> There you go, brother. There you go. The
23:01The you trade, the real the more you
23:02realize you don't know anything. Yep.
23:04>> That's right. And uh life teaches us
23:07this. I have a question on uh
23:11iron condor on a micro futures Nasdaq
23:15position. Expiration is July 31.
23:20Um it's been on for 22 days. Short
23:23strike is at 28. Long strike is at
23:2731 100. The question is, do I roll it or
23:31just hang in there?
23:33>> Um well, you're getting near the You're
23:34getting You're getting close to that uh
23:3620, you know, you're at the end of the
23:38month, so you're getting close to that
23:3921 days right now. I mean,
23:43here's what I would say.
23:45Um
23:46because it's an iron condor, you don't
23:48have to take it off at 21 days. You can
23:50wait a little bit longer. So, like,
23:52you're right in between right now. So,
23:54you're like what we say, you're on the
23:55dance floor. If you want to try to
23:56squeeze out a few more pennies and wait
23:58another week or so, or wait till the
23:59middle of next week, I'd be totally fine
24:02with that. But, there is no such thing
24:03as really rolling that iron condor. It's
24:05more like, you know, at what point are
24:07you going to close it out?
24:08>> Yeah, and then reopen.
24:09>> And you can reopen it the next month if
24:10you want to. But, you're right in
24:12between. I mean, you're probably up a
24:14small amount of money, right? Um
24:16>> Yeah.
24:16>> Yeah. I mean, I'd probably wait till
24:18after the weekend and uh early next
24:21week, and then and then I'd probably
24:22take it off and move on to August.
24:25>> Cool. Appreciate that, guys. Rock on.
24:27>> Thanks, Phil.
24:28>> Yeah. And uh we got one more question
24:31from the dog pound. We'll clear our
24:31screen off and then get to the rest of
24:33the questions. This is from Robert. When
24:35is it best that to use ETF or ETF
24:38options,
24:39and when is it best to use futures or
24:41futures options when trading
24:43commodities? I'll give you some
24:44examples, and you tell me.
24:45>> Sure.
24:46>> Um like things like gold, things like
24:48gold versus GLD, uh bonds versus TLT.
24:53>> Um so, I don't I don't
24:55>> Natural gas versus UNG, okay?
24:58>> Um
24:59F
26:52N
26:52>> it isn't an indication and usually it's
26:54a whole number. The 75, the 80, the 85
26:58cuz they've been around the longest.
26:59Then, they add the in between 77.
27:01>> So, first comes liquidity, then comes
27:03tradeability as measured by option
27:05volume and bid ask differential.
27:07Next comes contract size and BPR.
27:10Sometimes
27:11the the reason you would trade UNG as
27:14opposed to to natural gas NG is because
27:17natural gas is 10 or 11 times bigger.
27:20Bonds are 10 or 11 times bigger than
27:22TLT.
27:23Gold is 10 or 11 times bigger than GLD.
27:26So, contract size, notional contract
27:29size, and BPR are next. ETFs are usually
27:321/10 the size.
27:33>> Perfect.
27:33>> Okay? Next one.
27:35Risk and leverage are next on the list.
27:38You might not be comfortable because of
27:40the contract size with the amount of
27:42risk that you're taking.
27:43>> Mhm.
27:44>> Okay, I know they seem like they're the
27:45same thing, but sometimes the leverage,
27:47you know, when you do a bond, right?
27:49Just to put some context around this.
27:51You put up like, let's say, $2,000.
27:53You're trading a $100,000 bond.
27:55When you trade um an S&P an ES contract,
28:00just remember, you're putting up what,
28:01$24,000 now?
28:02>> Yeah. Yeah.
28:02>> You're putting up $24,000 to trade an ES
28:04contract.
28:06You are controlling 7,700
28:09times You're You're controlling $375,000
28:13worth of stock for $25,000.
28:16$375,000 worth of stock. That number
28:18might be too big for somebody.
28:19>> Yeah.
28:19>> So, you might want to do the MES, which
28:22is $37,000 and put up $2,200 or $2,400,
28:27whatever it is. But, that also might be
28:29too big. So, then maybe you do S- SPY.
28:32I'm just saying.
28:33The next one is Sometimes when you trade
28:35futures, you need to understand the
28:37nuances of futures and futures options.
28:39They're not exactly the same cuz each
28:41one's a little different. Like gold
28:42expires on a different day than crude
28:44oil. And crude oil expires on a
28:45different day than SPY.
28:47>> Which we think is barbaric, but it's the
28:49way it is.
28:50I mean, they should make it all
28:51standardized, but
28:52>> Barbaric, I don't know. It's [laughter]
28:54>> Archaic.
28:54>> Archaic, all right, whatever.
28:56>> He's a knuckle dragger, I'm sorry.
28:59>> [clears throat]
28:59>> And the last thing I came up with was
29:02that sometimes ETFs
29:05are not pure plays.
29:06>> They are not They could be a blended
29:08like TLT is a blended against a 20-year
29:09bond. It's not a pure
29:10>> move exactly the same.
29:12>> Yep.
29:12>> Yeah, so sometimes, you know, it can be
29:14a little bit weird in that sense.
29:16>> If spot is at 6,000 and futures at
29:186,100, is 6,000 the at-the-money option
29:23as the textbook say, or is 6,100 the
29:26at-the-money option as some traders say?
29:29Could you please clarify from a trader's
29:31perspective?
29:33>> It's the
29:35>> Yeah, go ahead.
29:36>> If you're the trader future at 6,100,
29:38it's where the future's trading.
29:39>> Yeah.
29:40>> Right.
29:40>> It's where the future trades, so it's
29:41what your underlying is trading. And
29:43futures are futures, and cash is spot,
29:45cash is cash. So,
29:46you know, if you could trade an option
29:48on cash, you'd be trading 6,000, but if
29:50it's on a future, it's 6,100 is at the
29:52money.
29:53>> Yeah, yeah. It's always what It's always
29:55what the future It's what the underlying
29:57future is that the The options you're
29:58trading are what whatever um settles
30:01into [clears throat] that underlying
30:02future.
30:03>> Okay.
30:05All right, next up. I was looking at the
30:07um forward {slash} SI options chain
30:10yesterday and noticed it only lists
30:12expirations out to July. Not much of a
30:14future, is it? Why does silver have such
30:17a short-dated options market compared to
30:19other futures? This is our friend from
30:21London or the UK, Julian.
30:25>> I'm not sure that that's actually
30:26correct, Julian.
30:27>> It's not.
30:28>> Yeah.
30:29>> I'm not sure that's correct.
30:30>> Yeah, the simple answer is
30:33and I will speak for for tasty when we
30:35were there, you you don't want to offer
30:37There's so many series in futures, and
30:41the problem is only the front handful
30:43are liquid after that they become really
30:45illiquid. So we didn't want to allow our
30:47customers to get into trouble because
30:48that's what's going to happen most
30:50likely if you go trade it. So we just
30:51limit we you know we just wouldn't show
30:53them all. There might be a platform that
30:55shows them but I actually pulled up
30:57silver
30:59and it looks like
31:01for silver the CME goes out to May of
31:0527.
31:07>> Yeah, I think at least
31:09>> out much further. I'm sure there's
31:10options on those but again the the
31:12markets are probably so wide you could
31:14drive a truck through them. So you know
31:17if I could tell you for tastyworks I
31:18guess is other platforms are doing the
31:20same thing retailers saying list and
31:21there's no reason to list those cuz
31:23they're not really tradeable.
31:24>> It's really dangerous when you show
31:26options that don't trade and then
31:28somebody makes a mistake and puts in an
31:30an order and that's like you know on a
31:33$10 away loses $10,000 and then tries to
31:36break the trade and he can't. So there's
31:38a reason firms don't show those options.
31:41That's why it is.
31:42>> Okay.
31:43>> But they're they exist.
31:44>> Okay.
31:45Um next.
31:46>> And you can trade SLV options. They go
31:48out you know probably leaps I'm guessing
31:51go out a couple of years.
31:52>> Um I will tell you SLV
31:54>> go out to 28 I'm guessing.
31:56>> Dec 15 of 28 a thousand and two days.
31:59You want to take a guess? Let's see how
32:01good your marketing
32:01>> Dec
32:02Dec of what did you say Dec of 28?
32:06>> Dec 15 of 28 so it's a thousand days.
32:10>> Okay, that's almost three years.
32:11>> the 60 at 63 and a half you want to take
32:13a guess on what the straddle is?
32:15>> 60
32:16>> we think the expected move for outgoing
32:18out that far?
32:20>> It's got to be
32:23at least
32:25>> It's lower than I think than I thought
32:26it would be.
32:27>> It's got to be at least
32:29$40 to $50.
32:31>> It's a good guess. $39 is lower than I
32:33thought it'd be. It's 39 bucks if you
32:34want to trade that.
32:35>> Okay, I was going to say 40.
32:36>> Yeah.
32:37>> All right.
32:38>> Yeah.
32:39>> Let's take a call. Stephen from Miami.
32:41Hi, Stephen.
32:42>> We got an interesting segment coming up.
32:43It's called
32:45um it is called how much of a role do
32:48Greeks play
32:50in your everyday trading?
32:51[clears throat]
32:52And I think you're going to be a little
32:53surprised by some of our answers here.
32:56But how much of a role do Greeks
32:58play in your everyday trading? So,
33:02>> They matter a lot, but probably not for
33:04the reason that you would think or that
33:06others would think. For me,
33:09excuse me, if I have an I'm thinking
33:10specifically about outright futures. So,
33:13you know, I mean yes, MNQ, etc.
33:16I I have a number of futures that I'm
33:19willing to do, which is based off of the
33:21delta. So, therefore, that's just
33:22outright delta. Where if I'm doing
33:24[clears throat] options strategies, I do
33:27try to get a certain amount of theta.
33:29So, I'm looking again at delta. I'm
33:32going to always try to keep an eye on my
33:33delta cuz I don't want my delta to get
33:35too big. And then other than that, I'm
33:37looking for theta. But that's to me For
33:40me, it's really a delta. I am really a
33:41delta trade.
33:42>> So, I wrote a couple of answers to this
33:44question. How much of a role do Greeks
33:45play? Because you guys are, you know,
33:47before we built thinkorswim, there was
33:49no really such thing as Greeks on a
33:51retail trading platform. And then we
33:53[clears throat] kind of incorporated
33:54stuff that we had learned from being on
33:55the trading floor into a retail platform
33:58to make everything make more sense
33:59because if the person that if the
34:02counterparty is using Greeks, why
34:03shouldn't you use them?
34:05So, first thing is
34:08how much of a role do they play in my
34:10everyday trading? Well, I wrote down
34:11moderate.
34:13So, I mean, they're they don't play a
34:16a huge role, they don't play no role.
34:18The The best term I could come up with
34:20was moderate. And
34:21>> Your biggest Greek would be
34:22>> There Well, you got to wait. They're
34:24important to me, but they're not
34:27overwhelming. So, so they don't govern
34:29my trades, but they um
34:33Again, the best term I could come up
34:34with was they play a moderate
34:36>> to I'm going to tie this back to the the
34:38question that somebody asked about tax
34:40and saying,
34:42you know, about making a trade for tax
34:44wash sales, etc. Why go into options?
34:46I'm going to say the same thing. I think
34:47people can get lost in the is paralysis
34:50by analysis. Oh my god, this is a tax
34:51issue, etc. I think too many retail
34:54customers get lost in the in the Greeks
34:57and they try to overplay the Greeks and
34:59>> That's why I said moderate.
35:00>> Yeah. I think most people I think where
35:02I see most concerns from a from a retail
35:05side where I did see in years past is
35:07that they're over engineer they're over
35:08thinking it rather than just saying put
35:09the trade on and just watch your deltas,
35:11watch your risk.
35:12>> I'm Tom Sosnoff, he's Scott Sheridan.
35:13Tony Battista is on vacation this week.
35:15989 lost dog if you want to chime in and
35:19or write into the dog pound.
35:21Um,
35:22we'd love to hear from you.
35:23So, how much of a role do Greeks play in
35:25your everyday trading?
35:26I use delta and theta
35:30on every trade
35:32>> Yep.
35:32>> and to monitor every position.
35:35>> Yep.
35:35>> So, there is no
35:38I mean, when I say I use theta, I will I
35:41I monitor my theta, but when I'm
35:44actually entering a trade, I will select
35:47the strike
35:48by the delta.
35:50In fact, if you um, I'm I'm about to do
35:53a video this week where we talk about
35:56um,
35:56I I think you're really going to like
35:57this one, too. It's talking about just
35:59kind of
36:00a lot of boring option strategies that
36:02we use in our everyday trading. And one
36:06of the things I talk about there is how
36:07important selecting the right strike is,
36:10not because anything's
36:12not because there's a pricing advantage,
36:14but because there is
36:16there's a way to optimize
36:19for
36:20where in the decay curve you have the
36:22most amount of decay with the least
36:24amount of risk. And that's what we like
36:26to do is we like to optimize for decay
36:28and risk. So, I select the options I'm
36:32going to sell or buy, whatever it is,
36:34um based on delta, and then I monitor my
36:37delta and my theta on every single
36:40position that I have.
36:41And I do that multiple times a day. By
36:44the individual position, then overall I
36:46look at the beta weighted position. Yep.
36:48Okay?
36:48>> Yep.
36:49>> So, the next one is
36:52how much of a role do Greeks play? I use
36:54beta weighted delta for monitoring my
36:56portfolio nonstop.
36:59>> Yeah, because but again, that's going
37:01back to your Greeks. So, you really want
37:02to watch, I'm sorry, going back to your
37:04delta. That's the most important of the
37:06Greeks. So, you know, you that's
37:08a 1A 1B 1C. So, that's going to show you
37:11what your delta is.
37:12>> We introduced beta weighted delta to the
37:14retail investor back in 2001. It's been
37:1825 years now. It didn't exist. It was an
37:21idea that T- Tom Preston had to put on
37:23the platform in thinkorswim platform,
37:25and then we refined it over the years to
37:27make it even better.
37:29Um but we've used beta weighted delta
37:31and we've we've played around with lots
37:33of different ways of, you know, how much
37:36you know, how we're going to actually
37:37create beta and how how we're going to
37:39weight everything, what we're going to
37:40weight it against. And in its most
37:42simplistic form, beta weighted delta
37:45essentially converts
37:47everything to a single
37:49like if you had apples, oranges,
37:51bananas,
37:53grapefruits, it just crew puts
37:55everything in peaches. Okay? That's
37:57essentially how it works.
37:59So, it gives you kind of the best It
38:02really gives you the best kind of idea
38:04of what your position is.
38:06It is so clean. I wish I had this kind
38:09of my entire career, and I don't even
38:11think we had it as professional traders.
38:13Nope. We had per underlying, but we
38:15never had kind of like portfolio beta
38:17weighted delta.
38:17>> Nope.
38:18>> It's unbelievable. I just can't believe
38:20there's still firms out there that don't
38:22offer this to their customers. I use
38:23this all day long for my entire overall
38:26position cuz I might have like, you
38:28know, 50 or 60 different positions on.
38:30So, I use beta weighted delta for
38:31monitoring everything. I use the
38:32individual underlyings for each
38:35individual position.
38:37The next one.
38:39And this is a very important trick.
38:43How much of a role do Greeks play in
38:44your everyday trading? Well, like I
38:46said, they play a moderate role, but
38:48what plays a really important role is
38:51your BPR, your buying power reduction.
38:55Because your buying power usage
38:57keeps all your other Greeks like gamma,
39:00your gamma risk and everything else in
39:02check. So, the back of the envelope
39:04says, whatever your buying power is for
39:06a trade is essentially your measurable
39:09risk on the trade.
39:11Again, this is a This is a really
39:14fun discussion that we've done in many
39:16seminars over the years and and many
39:18lectures that I've given, but
39:21using buying power reduction as a back
39:23of the envelope way of keeping your
39:25gamma risk in check, keeping your theta
39:28risk in check, keeping everything you
39:30all your other Greeks in check is a
39:33super cool way of also being able to
39:36quantify your risk on a trade.
39:41I mean, just think about that for a
39:42second. How much money you have to put
39:43up to make the trade is essentially your
39:45risk.
39:46And that we we that's your two standard
39:48deviation approximately. That's your two
39:50standard deviation risk. But this is a
39:52very mathematical business and that's
39:53essentially how you look at it. So, when
39:55somebody goes,
39:56well, like the last woman that called in
39:59and said she sold the 145 puts in in
40:02SpaceX, she's not selling those puts
40:04thinking the stock is going to zero.
40:06Because theoretically, the risk is the
40:08stock goes to zero. But stocks are not
40:10going to go from 145 to zero.
40:13The real risk is whatever that buying
40:14power reduction is for those puts. So,
40:16let's say the buying power reduction for
40:17those puts is is I'm just going to
40:19ballpark it 20% or the buying power
40:22reduction for those risk is $29,000.
40:25What's your real risk in that trade?
40:26$29,000.
40:28Okay?
40:29>> Out of one lot.
40:31>> Out of one lot. Yeah.
40:33But, that's it.
40:35I mean, that's how I look at it.
40:37>> And Space X is now down.
40:39>> Yeah, which does not surprise me because
40:41I thought this morning, you know, it it
40:43looked a little heavy and then
40:45today's one of those days when
40:46everybody's just, you know, let's just
40:48buy MU, let's just buy Micron and that's
40:51about it. I'm surprised we're not buying
40:52Nvidia.
40:54>> Well, it's up a dollar 30.
40:56>> Okay. And I think the last one here is
40:59how much of a role do Greeks play
41:01in your everyday trading?
41:04I find that implied volatility,
41:08your IV or IVX, and IVR
41:13are just as important as your
41:14traditional Greeks.
41:16So, if your traditional Greeks, you
41:18know, are
41:19delta
41:21delta, gamma, theta, let's just say
41:23those are are are the three main ones.
41:26Delta, gamma, theta, and forget about
41:28second order or second level Greeks, we
41:30don't need those.
41:31I find BPR
41:33and implied [clears throat] volatility
41:35or and or implied volatility rank just
41:37as important in the trading world.
41:40>> From
41:42to clarify this, when you're putting a
41:43trade on and when you're taking off, you
41:45don't watch it necessarily. It'll give
41:46you ideas to get it in and get out. Like
41:49right.
41:49>> There are lots of things that are super
41:51important when you're trading. Like, for
41:52example, liquidity. Your how much volume
41:54is trading, how much option volume, how
41:55much stock volume, you know, what the
41:57IVR is of the underlying, what the
41:58implied volatility is of the underlying
42:00to make sure it's something that you
42:01want to trade, that it's going to move
42:02around. And and of course, you know,
42:04knowing your beta weighted delta,
42:06knowing your buying power reduction on
42:07trade, all those things are important.
42:09Now, just to put some context around
42:11this,
42:11you can look at all of those things
42:15and you can get to a satisfactory
42:19kind of conclusion or quick overview or
42:21summary of IV, IVR, buying power
42:25reduction, delta,
42:28and theta, which is like five different
42:30things, in less than 2 seconds.
42:34This is not something that requires like
42:36writing it down, figuring it out. After
42:38you've looked at this stuff enough,
42:40you're talking literally 1 to 2 seconds.
42:44That's how fast if if your screen is set
42:47up right and you just I you're
42:48monitoring things kind of the way you
42:50just should be looking at it. You're
42:52talking about instantaneous. It might be
42:54sub 2 seconds. Maybe it's 1 second.
42:57That's how cuz all those numbers just
42:58blend together. You see them. If
43:00something stands out, if something looks
43:01weird, you'll pick that up, but it's 1
43:04to 2 seconds. So, this is not something
43:05that's like overwhelming.
43:07>> In fairness, it's muscle memory for you.
43:10Somebody new, it's going to take you a
43:11little bit longer, but it's fast. But,
43:12it's fast.
43:13>> Historically, have earnings been good or
43:15bad for the benchmark indexes like the
43:17S&P's, Nasdaq, whatever.
43:21>> Okay, well,
43:22to me the obvious answer is that they've
43:24been good cuz the market just continues
43:26to rally, but you're saying it's a trick
43:28question, so I can't wait to hear if you
43:30know the answer. Let's hear what the
43:32researcher show.
43:33>> Well, first of all, the first part of
43:34the question is I mean, nobody knows.
43:36Could strong second quarter earnings
43:37actually disappoint the market? And the
43:39funny thing about earnings
43:41>> [clears throat]
43:41>> and and this is something that we have
43:43studied this because I always thought
43:44there was some kind of like a little bit
43:46of maybe not necessarily an edge in
43:48earnings, but I always thought there was
43:49something to earnings. And from a trader
43:52side. And really all it is is is kind of
43:55an even money crapshoot. It's got It's
43:57almost like rolling the dice. Earnings
43:59over the last I want to say the pretty
44:02much over the last 20 years,
44:04if you trade earnings, they have been
44:07literally a toss-up.
44:08They have been almost within 1%
44:12of
44:14of up or down. So, like either it's 51%
44:17up, 49% down after earnings, or 49% up
44:21and 51% down, within 1% of 50/50. It has
44:25It has been the literal flipping of flip
44:28of a coin um to trade earnings.
44:31If we're going to talk about outlier
44:32moves, I would say the majority of
44:34outlier moves have probably been to the
44:36upside because we've been in a bull
44:37market. So, I would say the worst the
44:40[clears throat] worst earnings moves,
44:42meaning the earnings moves that that
44:44went outside of whatever the um expected
44:48move was, or moves that went into
44:50unquantifiable territory, like three to
44:53seven standard deviations, have the
44:55majority of those have been to the
44:56upside, probably like three quarters of
44:58them, relative as opposed to the
44:59downside.
45:00Um I think when you see that shift and
45:03the surprises come to the downside, you
45:05will start to see maybe a little bit of
45:07flip in the market. But, historically,
45:09have earnings been good or bad for
45:12benchmark indices? Now, you would
45:14probably
45:16think that okay,
45:17you know, everything's going to be
45:19essentially a coin toss cuz in the end
45:21it's results are pretty random.
45:23But, essentially, markets have
45:27gotten nervous around earnings times as
45:29measured by the increase in volatility.
45:31So, when volatility goes up, that's a
45:32fear index. That means that earnings
45:35kind of, you know, they they scare the
45:37marketplace a little bit, even though
45:39people expect good earnings cuz firms
45:41like to lowball their numbers and they
45:42like to put out, you know, estimates
45:44that are that they they know they can
45:46easily beat. The The simple answer is
45:48that earnings scare the market, that's
45:50why volatility goes higher because it's
45:52represented in the higher implied
45:54volatility in the front-month earnings.
45:57That said, in a bull market, you would
46:01think that that has been exceptionally
46:04good for indices. And the simple answer
46:05is
46:06that it has been. Because because
46:09>> I was going to say
46:11That's what I said, but you said it was
46:12a trick question. So, it was a trick of
46:14a trick question.
46:15>> Because volatility spikes before
46:17earnings. The expectation is that the
46:18fear is up because there could be a big
46:20down move. But what has historically
46:22happened is there have been more big up
46:24moves. And so, because volatility spikes
46:26so much, um it's actually been good for
46:29benchmark indices and it's helped propel
46:31the markets. Earnings have definitely
46:33helped propel them propel the markets to
46:35new record highs. I think if you see a
46:38situation where volatility doesn't spike
46:42or volatility already is high, then it's
46:44much more difficult for earnings to
46:46outperform to the upside. I think that's
46:48why you have to closely watch the VIX
46:50here. And I would put the VIX right now
46:52in kind of that middle ground.
46:54You know, that that neutral area.
46:55>> So, it's interesting because for, you
46:58know, somebody that's, again, if you're
47:00relatively new to this over the last 10
47:01years, you're going to look at this as
47:03something I'd say, "Well, obviously it's
47:04not 30 or 35." Which we've seen that a
47:06couple of times. But we were in a 12
47:08range, you know, a bunch of years ago
47:10and just sat there for a while. So, yes,
47:12I agree with you. But for some people,
47:14it's like interest rates. You have a lot
47:15of people saying interest rates are
47:16insanely high right now. No, they're
47:17not. They're historically normal and I
47:19think this is historically normal, you
47:21know, for volatility. So, I'm going to
47:22agree with you as well.
47:23>> So, so over the last couple of decades,
47:24earnings
47:26earnings, because the expectation has
47:28been for heightened fear, have actually
47:30been very good for benchmark indices.
47:32>> What edge can we build into our trading
47:34instead of just selling premium?
47:36>> So, it's I I think it Well, edge is an
47:39interesting question. You know, edge
47:40when we traded on the floor was very
47:43different than edge today. And for me,
47:46I'd say edge today is you're looking to
47:49put a trade on and you just say try to
47:52get as close to midpoint as you can and
47:54go with it. And the edge
47:56to me as a retail trader is that you can
47:59pick and choose what you want to do when
48:00you want to do it as opposed to a market
48:02maker where you have to you know for the
48:04most part you have to make a market when
48:05the broker asks you for it. So
48:09you know edge to me has a very different
48:10meaning now than it did you know 20
48:13years ago. But the
48:15>> To answer your question, I don't think
48:17there is any edge for retail investors.
48:20I don't think there ever has been any
48:22edge for retail investors.
48:23What's what you have today is less
48:27negative edge than you've ever had.
48:28Meaning the markets are better, they're
48:30more liquid, they're more efficient than
48:32they are than they've ever been. And
48:34you've never had any edge. And today you
48:37just have um
48:39it's just a little more efficient than
48:41it's ever been in the past. So that's
48:43that's a good thing. I also want to say
48:45that the that if you want to consider
48:47edge for retail investors, the edge is
48:50is that the mechanics today are better,
48:53the technology's better, the mechanics
48:55are better. And so you don't have to
48:57worry about things like you know like
48:59it's easier to figure things out than it
49:01was in the past. There's more
49:02information available. So the edge is
49:04that you get to do whatever it is you
49:05want to do. That's your only edge. And
49:07if you want to consider that some people
49:08say that's not an edge at all. Okay.
49:09Other people say that is my edge. I get
49:11to do whatever I want to do and I get to
49:12do it at efficient prices.
49:14>> Which is my comment. You get to pick and
49:15choose what you want to do.
49:17>> Yes. [clears throat] And
49:18this next question from the dog pound. I
49:20love these dog pound questions. If you
49:21have them just type them in. We got a
49:23whole team there.
49:24If I have a small IRA account, say like
49:26$2,000. What underlying assets would you
49:29recommend me to trade for defined risk
49:31trades?
49:35>> Well, you don't have a lot to work with.
49:38So you know
49:40I would say you're looking to either do
49:42verticals, iron condors.
49:44>> No, they're asking you what assets.
49:45>> Oh, which which assets? I'd say I would
49:47go to an index. I'd look at Qs, spy, you
49:50know, maybe maybe pick a
49:52medium-sized price stock. Um but it's
49:56not you know, you don't have a lot to
49:57work with.
49:58>> Well, it's you have $2,000 and you have
50:01defined risk. So, it doesn't matter what
50:02Here's the thing, don't get con- don't
50:04get hung up on what asset. Because if
50:07you're doing defined risk, you can trade
50:09a $5 wide you know, $1,000 stock,
50:13$7,000 index. It doesn't make any
50:16difference. There's no difference
50:17between trading a $700 stock and a $70
50:20stock or a $20 stock if you're trading
50:23defined risk. So, don't think about it.
50:25Just find the trade that you like. It's
50:27going to be a defined risk trade anyway.
50:28It doesn't matter what underlying you
50:30use. So, don't worry about it. If you're
50:31trading undefined risk, then it matters.
50:33If you're trading defined risk, it makes
50:35no difference at all. Trade whatever you
50:36want. Like don't worry about the asset.
50:39>> Yeah, I I don't trade on the platform,
50:40but I have used the platform and it's
50:42it's um I like their mobile app. It's
50:45It's actually really good.
50:48Um
50:50All right, let's talk about yesterday.
50:53We covered getting started scalping
50:54futures.
50:55Today,
50:57we will list the keys
50:59to scalping options. And like I
51:01mentioned at the beginning of the show,
51:04>> [clears throat]
51:04>> Scott and I have scalped options for
51:06longer than most of you have been alive.
51:08This is what we've done.
51:09So, here's my keys and take it from
51:12whatever you Take it from whatever you
51:14think it's worth.
51:14>> If you're going to scalp options, number
51:16one,
51:18they must have tight markets.
51:19>> This is one, two, and three.
51:21>> This is This is yeah, this is one and
51:22two and three.
51:23>> is everything.
51:23>> If you forget two and three, just
51:24remember one. They have to have tight
51:26markets. Things like SPY and SPX SPX has
51:30incredibly tight markets. Even though
51:31they look a little wider on the screen,
51:32they're literally like the equivalent of
51:34a half a penny to a penny wide.
51:36>> Yeah.
51:36>> Um you cannot scalp illiquid options.
51:39You just can't do it.
51:40>> There's just too much edge. You're
51:41giving up way too much edge getting in
51:43and getting out.
51:44>> If you're going to scalp options, they
51:46have to be tight. So, on the stocks that
51:48we talk about like obviously SPY, QQQ,
51:51SPX, but if you're talking about
51:53individual stocks, Apple, AMD, Amazon,
51:55Google,
51:57um Meta, Microsoft, um
52:00Netflix is fine, Nvidia, you know,
52:02SpaceX for sure. Those are liquid
52:05stocks. If you want to trade options on
52:07those things, go right ahead and scalp
52:08them. Go right ahead.
52:09>> Yeah.
52:10>> Okay?
52:11All those are fine.
52:12All right, next thing.
52:16>> Ah, damn it. I'm going to break this
52:18thing after the close. Move to the next
52:19slide, guys.
52:20Um
52:21>> One back.
52:23>> Yes, the next thing is that the
52:25underlying stock
52:27>> It's not dot. It's It's
52:28>> The underlying stock must trade over 10
52:31million, not
52:32>> Not $10 million worth.
52:33>> 10 million shares
52:35a day.
52:37So, the underlying stock must trade over
52:3810 million shares a day.
52:40That's an absolute minimum. There are
52:42stocks out there
52:43>> But it's going to be really, really
52:45unlikely and unusual to find super tight
52:47option markets where you don't have a
52:49stock trading that
52:50>> There will be some like SPX that doesn't
52:53actually trade.
52:54>> trade.
52:54>> So, so it's just an index, but if you're
52:57trading like the spy will trade 50
52:59million
53:00>> Some kind of 100 million, whatever it
53:01>> Yeah, whatever. Nvidia will trade 60
53:03million. You know, Tesla will trade 40
53:05million. SpaceX will trade 100 million
53:07shares.
53:08>> talking about this cuz I'm reading that
53:09book on the crash.
53:10>> Yeah.
53:11>> I think I have to go back I have to go
53:13look this up again, but I'm pretty sure
53:14the day of the crash in '29
53:17I think like 15 million shares traded.
53:18>> Oh, probably.
53:20>> Now, you have stocks that do that within
53:22the first hour.
53:23>> Oh, yeah.
53:24Yeah, I traded some stock
53:26I've traded stock cuz I know there's a
53:28question in the dog pound about S O X S
53:31>> Oh my god, we're back to this one we
53:32can't say.
53:33>> I I traded that stock
53:34>> A lot of this stock.
53:35>> cuz you're buy you're a big buyer. It's
53:36like $4.50
53:42or it's like $3.50. I It trade
53:46700 million shares the other day, 600
53:48million shares.
53:49>> That's insane.
53:49>> Yeah.
53:50So, the underlying stock must trade at
53:52least 10 million shares. Uh even if
53:54you're trading options, the underlying
53:55stock has to trade 10 million.
53:56>> 37 and it's already
53:59traded 373
54:02million
54:02>> Yes.
54:03>> in and at less than an hour and a half
54:05of the market straight 374 million
54:07shares.
54:08>> Okay. The next thing for if you're if
54:10you're scalping options,
54:12you have to have a profit target that
54:14just like I talked about yesterday, your
54:16profit target is a percent of the
54:19expected move. Usually around 25 to 35%
54:25of the assumed risk in this case. So, um
54:29I shouldn't have said expected move of
54:30of the percentage move. So, let's just
54:32say you bought an op Let's say you
54:34bought or sold an option for $2. Right?
54:37If you bought an option for $2, you're
54:38risking $2. So, your profit target in
54:40that case is going to be somewhere, I
54:42don't know.
54:42>> 50, 60, something.
54:43>> 50 cents to a dollar 50, 50 cents to a
54:46dollar. Somewhere in that range. Don't
54:48think you're going to make like six or
54:49seven dollars. Things just don't move
54:50that way. I mean, occasionally you'll
54:51get lucky and something might move five
54:52dollars. But and if you're shorting an
54:54option, because I like to short options
54:56to to scalp them. If I sell some If I
54:59sell some Let's say puts at $2 or I sell
55:01some calls at $2. I mean, I'm looking to
55:03buy those in at a buck 35, buck 40.
55:05>> Yep.
55:06>> Okay. So, you got to pick a target
55:09uh
55:10a profit target that is some percentage
55:12of whatever your assumed risk is.
55:15If you're long it, you know exactly what
55:17your risk is. If you're short it, it
55:18should be something
55:19>> really important
55:21to have that in your head as you're
55:23making the trade. Don't don't go into
55:25this and say, "I'm just putting this on.
55:26I'll figure it out later."
55:28>> You need
55:28>> You need to This is part of having a you
55:31know, a discipline to the approach.
55:33>> use it as a percent of your buying power
55:35reduction, too. So, like if there's a
55:37lot of different ways to look at it.
55:39Um and I would just be, you know, just
55:41have that kind of set in your head like
55:42like if you sell something, just an
55:44example, you sell something at $5.
55:46You're not buying it back at zero.
55:48Okay? And if you're scalping it
55:50>> got hit in the head.
55:51>> Yeah, if you if you're scalping it, I
55:53mean, $4 is great. Take a dollar out of
55:55it. $3.50 would be amazing. $3 would be
55:57incredible.
55:58>> Yep.
55:59>> $4.50 would be awesome. Like, those are
56:01scalps. If you're buying something at $3
56:03or $4 or $5 and you can sell it at $6 or
56:06$7,
56:08yeah, you do that until your hands
56:09bleed.
56:11Um
56:14we rarely hold
56:17an intraday scalp.
56:19And this is important. We rarely hold an
56:21intraday scalp into the afternoon
56:24session.
56:24>> of had a more general question around
56:26like
56:27net worth allocation because I know you
56:30guys have taken some big bets in your
56:32life, whether it's, you know, with your
56:33businesses or with trades or whatever it
56:36was how how you were allocated in
56:38different in different times of your
56:39life and, you know, over the years I
56:42basically have like cash, trading
56:44account, Nasdaq, Bitcoin, gold. Like,
56:47those are kind of my buckets.
56:48>> Yeah.
56:48>> And obviously the Bitcoin bucket has
56:51has, you know, really overcome all the
56:53other ones. And from a risk management
56:56standpoint, it really makes sense to
56:57trim that bucket. Um but, you know, it's
57:00also kind of the bucket that got me to
57:03the number of net worth that I have
57:04today. And I do think, you know, crypto
57:07might be going on another run here. I
57:09feel like I kind of held through the
57:11hard part a few times and this last hit
57:13was the hardest cuz it was like, you
57:15know, the biggest monetary one from a
57:17dollar value.
57:18>> Yeah.
57:18>> And I'm just wondering, you know, how do
57:20you think about that in different times
57:22of your life? Like, kind of
57:23betting the farm versus, you know, being
57:26a prudent risk manager and really
57:28trimming the the part that's really
57:30going to make or break you.
57:32>> You know, that's a that's a really fair
57:34question. I mean, I think for us
57:36you we give it a like it depends how
57:38long your run's been in crypto. Like if
57:40you've got a 10-year run going, I'd
57:41probably take something off the table.
57:43If it was like a 3-month, 6-month, or 1
57:45or 2 years, I could see holding on to
57:47it. But I got this decade rule.
57:51The decade rule says, "Hey, at the start
57:53of the next decade, I got to move on and
57:55do something else." And I got to keep
57:57you know, I got to keep fresh. So that's
57:59kind of how I look at it. But I I think
58:02the Bat and I are both in the camp of
58:05we're okay taking some money off the
58:07table.
58:07>> Yeah, I probably ring the register a lot
58:09quicker than you do. But yeah, I agree
58:10with you. I don't I don't mind taking
58:12money off. I don't mind patting myself
58:13on the back.
58:14>> Yeah, I mean you rode that horse, man.
58:15You did amazing.
58:16I remember talking to you I feels like
58:1815 years ago or whatever it was
58:21when we were in the old studio. And
58:23uh
58:24listen, you know, you killed it. That's
58:26awesome. But I we'd probably take
58:28something off the table.
58:28>> Mhm.
58:30>> You know, I'd probably reload too early.
58:33>> Yeah, exactly. That's what I'm scared
58:36of. But I remember talking to you guys
58:37literally like 15 years ago on the
58:39phone. I was just proving concept with
58:41like defined risk spreads and naked
58:43premium. And I remember saying to you
58:45like, "All right, what's the next step
58:47because I'm broke. I'm like 22 years
58:49old. Like
58:50>> Yeah, you were speaking to us in broken
58:51Rhode Island. That's what I remember.
58:53>> Yeah, yeah, yeah. I'm actually in
58:54Charlotte, North Carolina now. But I
58:56like you know, I like to say Chris is
58:57from Rhode Island with you guys. But
58:59>> Okay.
58:59>> I
59:00But uh you know, I was asking, "Hey, I
59:02just proved concept here. I'm starting
59:03to learn naked premium. Things are going
59:05well. I I just need some money now to
59:08actually you know, put it to work." And
59:10you told me you were mailing me a check.
59:12I didn't
59:13>> No, I told you I told you I told you
59:15Tony was mailing you a check.
59:17>> [laughter]
59:17>> Oh,
59:19okay.
59:20>> Yeah, you didn't get that check?
59:22>> I'm still waiting for it. But I'mma keep
59:24watching you guys, man. I love that you
59:25guys are doing your thing here, and uh
59:27looking to call back soon. All right?
59:29>> Thanks, man. Thanks, man. Appreciate it.
59:30Appreciate the call. Appreciate the
59:31support.
59:32>> Thanks. Thanks, Chris.
59:33>> Yeah, I remember him calling him 15
59:34years ago when we first started. Um
59:37So, S&P's down 39, not much, and the
59:40NASDAQ kind of hanging in there, all
59:41things considered. Um
59:44Would you When you see that the Fed's
59:472-day meeting
59:48>> Yeah.
59:48>> They raised the probability on the CME
59:51site to 85%. Didn't you tell me the
59:53other day if it's over
59:54>> When it's over 65% they've never not
59:57gone in that direction. So, it was a 65%
1:00:00chance or more of a rate
1:00:01>> 65% chance is a 100% chance.
1:00:03>> That's right. 65% is 100%. 65% of the
1:00:05time you're 100% correct.
1:00:06>> That's right.
1:00:07>> In this instance, it plays true.
1:00:09>> The interesting thing about that is that
1:00:10I don't know that there's a play there
1:00:13because there's no question that
1:00:15everybody already knows that, and that's
1:00:17already priced in to the bonds where
1:00:19they currently are.
1:00:20>> to be the wording or the BS moving
1:00:23forward. Like, are we going to maybe
1:00:24take rates down again after the war is
1:00:27over? You know, like, again for the 80th
1:00:28time.
1:00:29>> See, it's fun
1:00:29>> If you like this video, please take a
1:00:31look in the description at what I'm
1:00:33building now. You can join along for
1:00:35free, get access to my new portfolio,
1:00:37career optimization tools, financial
1:00:39forecasting, and our new prediction
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This page contains the full transcript of The Complete Guide to Covered Calls, Futures and Greeks by More Tom Sosnoff, generated from the public captions YouTube serves with the video. The transcript has 11,768 words across 1,875 segments, with the original timestamps preserved so you can click any line to jump to that moment in the embedded player.

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